White Pushes for SEC Rule on Uniform Fiduciary Duty

SEC Chair Mary Jo White recently suggested that the Comission should “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investor.” Several members of congress, as well as industry participants such as SIFMA, have advocated for the SEC to essentially preempt moves by the Department of Labor (DOL) to enact a higher fiduciary standard for advisers working with retirement accounts under the Employee Retirement Income Security Act (ERISA).

Action by the DOL has been pending for some time. In 2010, the agency proposed a controversial rule that would have amended the definition of fiduciary under ERISA. The DOL subsequently withdrew the rule and stated that it would revise and repropose it. Recently, tensions rose after a leaked White House memo indicated that the administration was preparing to advance the issue. The memo suggested that investors were losing “billions of dollars a year” due to “perverse incentives” that cause financial advisers to recommend higher cost products and excessive churning. In February, President Obama publicly called for the DOL to amend the rule, saying “[i]f you want to give financial advice, you have to put your clients’ interest first.” However, he predicted that the change would face stiff opposition from interest groups.

Industry groups, such as SIFMA, argue that the Department of Labor’s proposal “would have forced investors from commission-based accounts to higher cost fee-based advisory accounts, that could ultimately lead to a number of negative consequences for individual investors, including limiting investor choice, limiting investor access to education regarding retirement accounts, and increased costs for saving.” The Financial Services Roundtable issued a memo arguing that changes to the ERISA rules would limit access to professional retirement planning and in turn reduce overall retirement savings.

However, even as the SEC seemingly moves to preempt the DOL, attorneys representing plans subject to ERISA are reporting what appears to be coordinated activity between the two agencies, according to an article from Pensions & Investments. The article notes that the SEC is focusing on the presence and disclosure of compensation-related conflicts of interest, specifically “undisclosed bias toward proprietary products and investments.” David Kaleda, a principal in the Fiduciary Responsibility practice for Groom Law Group, explained that “[w]e see the SEC asking very specific questions about compensation arrangements and how they comply with ERISA. There's a greater likelihood that if they see something, or they do not like your explanations, they're going to call DOL.”